Wells Fargo Hands Citigroup an Unexpected Prize: A $100 Million Check

By ERIC DASH

Published: November 20, 2010

Nearly two years after Citigroup was outfoxed for the troubled Wachovia Corporation, Citi is walking away with an unexpected prize: a $100 million check from Wells Fargo to resolve claims that it had unfairly wrestled Wachovia out of Citi's hands.

The settlement, reached Friday, ends the bitter legal sparring that began just hours after Wells Fargo made a stunning middle-of-the-night bid for Wachovia in October 2008, days after Citigroup announced that it had a deal. Although Wells Fargo's offer ultimately prevailed, Citigroup mounted an aggressive fight to recover as much as $60 billion in damages - and to change the public perception that it had bungled one of the watershed deals of the financial crisis.

Indeed, Citigroup officials thought they were riding to the rescue when they offered to buy Wachovia, one of a handful of deeply troubled financial companies that regulators were desperately trying to stabilize. The government arranged for JPMorgan Chase to buy Washington Mutual in one of the first shotgun mergers of the crisis, and it needed a fast solution for Wachovia.

Citigroup, facing its own gaping losses, asked for federal assistance to complete the merger; Wells Fargo beat Citigroup's bid with an offer that required no extra government support.

Under the terms of the settlement, Wells Fargo agreed to pay Citigroup $100 million to resolve all claims related the dispute.

''We are glad to put this matter behind us and we look forward to our two institutions working together in the future,'' the companies said in a joint statement.

By cutting the large settlement check, Wells Fargo hopes it can remove the legal cloud hanging over what has been a game-changing merger for the company. The deal nearly doubled the size of Wells Fargo and transformed it from a California regional bank into a national, too-big-too-fail giant.

Now that its real estate losses from Wachovia appear to be easing, Wells Fargo officials say that the deal is paying off far better than they expected. The $100 million payoff may just be another merger expense.

Meanwhile, the settlement should also free up the bank's leadership team to focus on the remaining challenges of integrating Wachovia's East Coast banking operations, rather than face the possibility of reputational embarrassments or other setbacks that could emerge in a trial.

This week, Wells Fargo announced that it planned to convert branches in New Jersey and Delaware in February, followed by New York and Connecticut in March.

For Citigroup, the legal windfall is essentially found money. Although Citigroup had vowed to mount a vigorous campaign, several legal experts regarded its case as flimsy. Citigroup had entered into only an exclusivity agreement with Wachovia; it had not formally completed the merger.

Still, it is a somewhat hollow victory. By missing out on Wachovia, Citigroup lost its chance to gain one of the last remaining large regional banking franchises, which would have brought in tens of billions of dollars in stable deposits and vastly expanded its branch network in the United States.